these are called “recessions” and … “depressions”.
Ha, very good point. Our current society is largely built around growth, and when growth stops the negative effects absolutely do trickle down, even to people who don’t own stocks. In fact, companies were counting on those increases, and so have major issues when they don’t materialize, and need to get rid of workers to cut costs.
I will mention that through most of history and prehistory, the economic growth rate has been much, much, smaller. I haven’t read it, so I can’t vouch for its quality, but apparently the book The End of Growth: Adapting to Our New Economic Reality suggests that economic growth can’t continue indefinitely due to physics limitations, and lays out a framework for transitioning to a post-growth economy. I have no idea how gentle or unpleasant such a transition might actually be. (Also, note that I am hopeful that we can avoid resource limitations by transitioning to a space based economy, and am nowhere near as pessimistic as I think the authors are likely to be.)
China.
China did indeed achieve massive benefits from industrialization. There’s a lot of evidence that maximizing economic growth is an excellent way to play catch-up and obtain modern amenities for your population. Perhaps it’s even the fastest theoretically possible way, since access to capital is the limiting factor for improved quality of life, and selling cheap stuff gets you lots of capital. I don’t think developing countries should try communism or anything like that, unless for some reason they expect it to result in higher economic growth, since the data suggests that free markets are much better for them.
I would, however, suggest that the price of basic amenities appears to me to be a limiting factor in the quality of life of poor people in developed nations, and that increases in national wealth tend not to translate into proportional increases in purchasing power for them, although there is still some gain. (As I said before, I should really look into the details, though.) I see 2 basic classes of solutions:
You can try to funnel more goods and money to them. This might be done through tax structures, aid programs, education, basic income, etc. Either you try and improve their earning potential, or give them things directly, but either way they wind up with more. The end result is that they can purchase more such amenities at the same price, or perhaps a little cheaper due to more economies of scale and more competition for those items.
You can try to funnel more R&D into the sorts of things that the poor want than a free market would otherwise do. Most of the ways of doing this will cut into GDP somewhat, but maybe there are some public good type things that would out-preform the market, but where the benefits are difficult for one company to capture. A dollar spent on specific types of education, for example, may increase GDP by more than 1 dollar. However, since it can be difficult to capture a return on investment,^[1] we have a tragedy of the commons scenario, and government or some powerful entity has to step up and foot the bill for the common good, if we want things like that. (Note that I’m not sure that this is still true on the margin, just that if we cut all funding for education that the GDP would drop by more than the amount saved.)
No one
I was being a bit hyperbolic there, but you’ll note that I followed it with 2 examples of startups which might in the future actually be cheaper than what the poor currently use. (3D printing might remove labor costs from construction, and Soylent has aspirations of making food into a utility. I probably should have said so specifically.)
Walmart is a good point. I’m not sure whether the benefits from cheaper goods outweigh the cost to local jobs, but I’m sure we’ve both heard the complaints. That’s getting dangerously close to talking politics, so I’d prefer to avoid getting into details, but I’d be interested if anyone knows of any academic research or cost-benefit analyses.
Uber may be cheaper than taxis, and AirBnB may be cheaper than hotels, but the poor don’t use taxis or hotels. I am hopeful that self-driving cars will make transportation cheap enough that the poor benefit, though.
My point wasn’t that the poor aren’t any better off decade by decade. That appears to be false. My point is that they aren’t 5% better off each year, even though the economic growth rate is about maybe 7.5-ish-percent with maybe 2.5% inflation. So, most (but not all) of that growth is going into sectors which don’t benefit the poor much.
[1] Interestingly, this appears to be precisely what Signal Data Science’s business model is. They teach you in exchange for a fraction of your future salary. However, perhaps due to irrationality, there doesn’t seem to be a wider market for this sort of thing.
through most of history and prehistory, the economic growth rate has been much, much, smaller
True, and I think not many people want a return to those times (some do, though, mostly on environmentalist grounds).
increases in national wealth tend not to translate into proportional increases in purchasing power for [the poor] … My point is that they aren’t 5% better off each year, even though the economic growth rate is about maybe 7.5-ish-percent with maybe 2.5% inflation.
That’s the whole growing-inequality debate, a separate highly complicated topic.
outweigh the cost to local jobs
Economically speaking, a job is a cost. If you can produce the same value with fewer jobs, that’s a good thing called an increase in productivity.
Agreed. When I said the “cost to local jobs” I was being informal, but referring to the (supposed) increase in unemployment as Walmart displaces local, less efficient small businesses.
Paying people to do a job which can be eliminated is like paying people to dig holes and fill them back in. I’d rather just give them the money than pay them to do useless work, but I’ll take the second option over them being unemployed.
As an interesting side note, I think this might put me on the opposite side of the standard anti-Walmart argument. The meme argues that, Walmart not paying its workers a living wage and making it difficult to unionize forces the government to step in and provide aid, and that this is in effect subsidizing Walmart.
However, because Walmart sells mainly to the poor, I am in favor of subsidizing them in any way that passes through to the poor and doesn’t get skimmed off the top. Maybe that would mean I’d even be against a law forcing them to pay $10/hr or some such, if the benefits to the employees didn’t outweigh the net drawbacks to the customers.
Mainly I just find it depressing that all current political narratives seem to ignore these complexities, and boil down to “Walmart bad” or “markets good” or whatever. Maybe some more intelligent conversations happen behind closed doors, where no one can hear politicians make sane concessions to the other side.
Mainly I just find it depressing that all current political narratives seem to ignore these complexities, and boil down to “Walmart bad” or “markets good” or whatever. Maybe some more intelligent conversations happen behind closed doors, where no one can hear politicians make sane concessions to the other side.
Very few politicians of either side argue that Walmart is bad. At least outside of the local level.
Ha, very good point. Our current society is largely built around growth, and when growth stops the negative effects absolutely do trickle down, even to people who don’t own stocks. In fact, companies were counting on those increases, and so have major issues when they don’t materialize, and need to get rid of workers to cut costs.
I will mention that through most of history and prehistory, the economic growth rate has been much, much, smaller. I haven’t read it, so I can’t vouch for its quality, but apparently the book The End of Growth: Adapting to Our New Economic Reality suggests that economic growth can’t continue indefinitely due to physics limitations, and lays out a framework for transitioning to a post-growth economy. I have no idea how gentle or unpleasant such a transition might actually be. (Also, note that I am hopeful that we can avoid resource limitations by transitioning to a space based economy, and am nowhere near as pessimistic as I think the authors are likely to be.)
China did indeed achieve massive benefits from industrialization. There’s a lot of evidence that maximizing economic growth is an excellent way to play catch-up and obtain modern amenities for your population. Perhaps it’s even the fastest theoretically possible way, since access to capital is the limiting factor for improved quality of life, and selling cheap stuff gets you lots of capital. I don’t think developing countries should try communism or anything like that, unless for some reason they expect it to result in higher economic growth, since the data suggests that free markets are much better for them.
I would, however, suggest that the price of basic amenities appears to me to be a limiting factor in the quality of life of poor people in developed nations, and that increases in national wealth tend not to translate into proportional increases in purchasing power for them, although there is still some gain. (As I said before, I should really look into the details, though.) I see 2 basic classes of solutions:
You can try to funnel more goods and money to them. This might be done through tax structures, aid programs, education, basic income, etc. Either you try and improve their earning potential, or give them things directly, but either way they wind up with more. The end result is that they can purchase more such amenities at the same price, or perhaps a little cheaper due to more economies of scale and more competition for those items.
You can try to funnel more R&D into the sorts of things that the poor want than a free market would otherwise do. Most of the ways of doing this will cut into GDP somewhat, but maybe there are some public good type things that would out-preform the market, but where the benefits are difficult for one company to capture. A dollar spent on specific types of education, for example, may increase GDP by more than 1 dollar. However, since it can be difficult to capture a return on investment,^[1] we have a tragedy of the commons scenario, and government or some powerful entity has to step up and foot the bill for the common good, if we want things like that. (Note that I’m not sure that this is still true on the margin, just that if we cut all funding for education that the GDP would drop by more than the amount saved.)
I was being a bit hyperbolic there, but you’ll note that I followed it with 2 examples of startups which might in the future actually be cheaper than what the poor currently use. (3D printing might remove labor costs from construction, and Soylent has aspirations of making food into a utility. I probably should have said so specifically.)
Walmart is a good point. I’m not sure whether the benefits from cheaper goods outweigh the cost to local jobs, but I’m sure we’ve both heard the complaints. That’s getting dangerously close to talking politics, so I’d prefer to avoid getting into details, but I’d be interested if anyone knows of any academic research or cost-benefit analyses.
Uber may be cheaper than taxis, and AirBnB may be cheaper than hotels, but the poor don’t use taxis or hotels. I am hopeful that self-driving cars will make transportation cheap enough that the poor benefit, though.
My point wasn’t that the poor aren’t any better off decade by decade. That appears to be false. My point is that they aren’t 5% better off each year, even though the economic growth rate is about maybe 7.5-ish-percent with maybe 2.5% inflation. So, most (but not all) of that growth is going into sectors which don’t benefit the poor much.
[1] Interestingly, this appears to be precisely what Signal Data Science’s business model is. They teach you in exchange for a fraction of your future salary. However, perhaps due to irrationality, there doesn’t seem to be a wider market for this sort of thing.
True, and I think not many people want a return to those times (some do, though, mostly on environmentalist grounds).
That’s the whole growing-inequality debate, a separate highly complicated topic.
Economically speaking, a job is a cost. If you can produce the same value with fewer jobs, that’s a good thing called an increase in productivity.
Agreed. When I said the “cost to local jobs” I was being informal, but referring to the (supposed) increase in unemployment as Walmart displaces local, less efficient small businesses.
Paying people to do a job which can be eliminated is like paying people to dig holes and fill them back in. I’d rather just give them the money than pay them to do useless work, but I’ll take the second option over them being unemployed.
As an interesting side note, I think this might put me on the opposite side of the standard anti-Walmart argument. The meme argues that, Walmart not paying its workers a living wage and making it difficult to unionize forces the government to step in and provide aid, and that this is in effect subsidizing Walmart.
However, because Walmart sells mainly to the poor, I am in favor of subsidizing them in any way that passes through to the poor and doesn’t get skimmed off the top. Maybe that would mean I’d even be against a law forcing them to pay $10/hr or some such, if the benefits to the employees didn’t outweigh the net drawbacks to the customers.
Mainly I just find it depressing that all current political narratives seem to ignore these complexities, and boil down to “Walmart bad” or “markets good” or whatever. Maybe some more intelligent conversations happen behind closed doors, where no one can hear politicians make sane concessions to the other side.
Very few politicians of either side argue that Walmart is bad. At least outside of the local level.